I turn 59 in September 2025 and I plan to retire at 62 with no debt. I have $1.2 million in a traditional IRA and $200,000 in a workplace Roth 401(k). I have an emergency cash fund in a high-yield savings account. I earn $320,000 per year and annually contribute $30,000 to the Roth 401(k), plus I get a match on the first 6%. My only current debt is a $170,000 mortgage on a home worth $625,000. My wife and I will collect around $3,500 each month in Social Security at age 62. I have savings set aside to bridge medical insurance until Medicare coverage starts at age 65. Our projected expenses—which include property taxes, health insurance and auto insurance, plus normal living expenses—will be around $7,000 per month at age 62.
Is this a good plan? What could I do to make it better besides delaying retirement?
– Shaun
Shaun, based on what you’ve shared, it looks like you’re in solid financial shape. While the finer details will influence your final decision, we can take a step back and look at the broader picture to see why retiring at 62 seems within reach. After that, I’ll walk through a few suggestions I’d consider if I were in your position.
Whether you’re getting ready to retire or just starting to save for it, a financial advisor can help you plan for the future. Connect with your advisor matches today.
How Much Will You Need to Withdraw Per Year?
You’ve already taken a helpful first step by estimating your retirement expenses. The next move is to compare those costs to any sources of guaranteed income you expect to receive, such as pensions, annuities, or Social Security.
You and your wife are expecting to receive about $3,500 per month in Social Security benefits, which I assume is based on your latest estimate. If your monthly spending is projected at $7,000, that leaves a gap of roughly $3,500 that would need to be covered by withdrawals from your retirement savings—setting taxes aside for the moment.
(And if you need help deciding when to claim your Social Security benefits, speak with a financial advisor about your options.)
How Much Will You Have When You Retire?
Next, let’s estimate the value of your savings when you retire. You’ve got about $1.4 million in retirement accounts with three more years of contributions and growth ahead of you.
You’re saving $30,000 per year in your Roth and getting a 6% match. You didn’t specify the structure of the match so let’s go with the common 50% of 6%, but adjust this to fit your actual match if it’s different. At $320,000 per year, that would come out to another $9,600, which I’ll assume goes into a tax-deferred account.
In addition to your contributions, the value of your Roth and tax-deferred savings will depend partially on the growth of your investments. We can use a range of estimates to see what that might look like based on some reasonable expectations of diversified asset allocations suitable for near retirees:
|
Rate |
Roth Savings |
Tax Deferred Savings |
|
5% |
$331,000 |
$1,421,000 |
|
6% |
$339,000 |
$1,462,000 |
|
7% |
$348,000 |
$1,500,000 |
Based on the assumptions I made, you could have anywhere from $1.75 million to $1.85 million in savings. Again, adjust for your own comfort level and investment plan if these assumptions don’t seem to fit you. (If you’re unsure how much money you’ll have by the time you retire, a financial advisor can help you with investment projections.)
Account for Income Tax
Although I suggest you do a detailed analysis of your specific situation and talk this through with a tax accountant or financial advisor, we can use a rough estimate to get an idea of the income tax you might expect to pay on your retirement income. Even though you won’t be retiring for another three years, I’ll base my calculations on the 2025 tax rates and brackets just to illustrate how it works.
Your Roth account is projected to make up just under 20% of your total retirement savings. For simplicity, I’ll round that to 20% and assume that all withdrawals are taken proportionally. So, for every $100 you withdraw, we’ll estimate that $20 comes from your Roth—tax-free—and $80 comes from your traditional IRA, which is subject to income tax.
So, let’s say you collect $42,000 in Social Security, 85% of which is taxable. That’s $35,700 of taxable income. You’d then need to withdraw another $42,000 per year from savings to cover your expenses. Since 80% of the money you withdraw from retirement accounts will come from the traditional IRA, that will add another $33,600 to your taxable income for the year.
As a result, your Social Security benefits and retirement account withdrawals would add up to $69,300. Taking the standard deduction ( $30,000 in 2025 ) would lower your taxable income to $39,300.
Based on these income projections and the 2025 federal income tax brackets, you and your wife would be in the 12% marginal tax bracket. You would owe approximately $4,240 in federal income tax.
If you plan to pay that bill using funds from your traditional IRA, you’d need to account for the fact that the withdrawal itself is taxable. To cover the tax while factoring in the tax on the withdrawal, you’d likely need to take out closer to $5,000 in total. However, if you used Roth funds to pay your tax bill, no additional income tax would apply to that withdrawal.
All told, you’d be looking at withdrawing upwards of $47,000 from your tax-deferred savings and Roth 401(k), which together could be worth up to $1.85 million by the time you retire. That’s a withdrawal rate of about 2.5%, which is quite low even if you didn’t have home equity to tap into if needed.
(And if you need additional guidance when it comes to tax planning, consider working with a financial advisor.)
How to Improve Your Situation
I think the premise of your plan is more than workable. However, there are some things I think you can do to make it better:
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Consider delaying Social Security: You accept a steep penalty for claiming Social Security early. Even if you retire at 62, it’s quite likely that you’d be better off delaying Social Security. Unlike volatile investments, Social Security benefits grow by a fixed rate, which is 8% per year past full retirement age (until age 70). They also aren’t fully taxable, and adjust for inflation.
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Optimize your withdrawal sequence for taxes: In the estimate above I assumed you’d take proportional withdrawals from your Roth and tax-deferred accounts. You may benefit from withdrawing from your tax-deferred balance first, and letting your Roth account grow.
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Consider Roth conversions: You would likely also benefit from partial Roth conversions during early retirement. This could let you take advantage of low tax years, especially before Income-related Medicare Adjustment Amount (IRMAA) becomes a factor, and help reduce future required minimum distributions (RMDs).
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Plan for long-term care: Although your retirement income needs are adequately covered, think about your plan for covering a potential long-term care situation.
(For additional advice on how to improve your retirement outlook, match with a financial advisor today.)
Bottom Line
Your savings and Social Security benefits are likely enough to support $7,000 in monthly expenses in retirement. If you consider the potential suggestions I made above, you may find yourself in an even stronger financial position in retirement.
Retirement Planning Tips
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A financial advisor who specializes in retirement planning and building financial plans can be a valuable resource as you prepare for your golden years. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Retirees often have assets spread across taxable, tax-deferred and tax-free accounts. Creating a withdrawal strategy that balances these sources can help reduce your lifetime tax burden. For example, drawing from taxable accounts first while allowing tax-advantaged accounts to grow may help manage taxable income in early retirement.
Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Brandon is not an employee of SmartAsset and is not a participant in SmartAsset AMP. He has been compensated for this article. Some reader-submitted questions are edited for clarity or brevity.
Photo credit: Courtesy of Brandon Renfro, ©iStock.com/Jacob Wackerhausen, ©iStock.com/PeopleImages
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